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What BCBS 239 Means for the Industry

Whenever the topic of BCBS 239, the Basel Committee on Banking Supervision's set of guidelines regarding risk data aggregation and reporting, people immediately tend to jump to the looming January 2016 deadline.

Dan DeFrancesco looks at the impact BCBS 239 will have on the industry.

Whenever the topic of BCBS 239, the Basel Committee on Banking Supervision's set of guidelines regarding risk data aggregation and reporting, people immediately tend to jump to the looming January 2016 deadline.

It's understandable why that's the focus of so many. The deadline for global systematically important banks (G-Sibs) to meet the principles put forth by BCBS is less than a year away, and a January progress report published by the Basel Committee stated 14 G-Sibs indicated they would not fully comply with at least one of the 14 principles by the deadline.

"It empowers them to actually comply with future regulations in a much faster capacity. - Paul McPhater, chief operating officer for enterprise software at Markit"

For the time being, though, let's overlook the issues banks are facing in complying with BCBS 239 (for more information on firms' struggles with BCBS 239, check out my June feature in Waters). By suspending reality and imagining that all banks will meet the principles laid out in BCBS 239 by January, the next question that arises is what kind of impact these new practices will have on the market.

Prepared for the Future

From the outset, the goal of BCBS 239 was to address concerns raised during the financial crisis about banks' inability to quickly identify all their exposure levels and financial risks.

Paul McPhater, chief operating officer for enterprise software at Markit, tells Sell-Side Technology he believes BCBS 239 will be able to streamline this process by highlighting inefficiencies in terms of how banks' systems are structured and siloed.

By doing so, McPhater says firms will put themselves in a better position when it comes to meeting the requirements of new regulations.

"It empowers them to actually comply with future regulations in a much faster capacity," McPhater says. "What this is looking for is the unit in control of your data to understand the risk numbers that are coming out. Where's that data coming from? What are the levers? Then you can actually do your scenario planning. You can do what-if type analysis, and then actually get responses for future regulations going forward."

Vijay Aviur, head of risk, global markets and wholesale lending technology in India for ANZ, can attest to that sentiment. While working to meet the BCBS 239 guidelines ─ while the roadmap is meant for G-Sibs, it "strongly suggests national supervisors also apply these principles to banks identified as domestically systematically important banks (D-Sibs)" ─ Aviur says the firm discovered they were storing roughly six times as much data as they needed to. Now, due to the systems and processes put in place for BCBS 239, they have zero redundancy in terms of data and data systems, Aviur says.

For Joe Dunphy, vice president of product management at Fenergo, BCBS 239 is part of a greater initiative to raise the understanding, awareness and controls over enterprise-level risk. The guidelines, in Dunphy's eyes, will be looked at as part of a wider regulatory agenda that helped make risk a board issue.

BCBS 239 speaks to the overall changes being put in place in the industry, which require banks to look at their entire client relationships as opposed to handling each independently.

"[The guidelines] all should have largely been in place before, but when you take something that comes from the Basel Committee and it gets the sort of global attention that this gets, what it does is drive those risk questions and those risk requirements further up the food chain within the banks in terms of who is responsible and who is paying attention to it," Dunphy tells Sell-Side Technology. "If nothing else, it drives a greater awareness of risk and a greater awareness of aggregated risk at a senior level. I think it will largely do its job."

For one employee of a G-Sib bank, BCBS 239 should serve as a jumping-off point for banks' approach to better data governance across the board. The employee sees a real advantage in being able to use the process put in place for a firm's complete data set.

"I'm sure there is not one bank out there that you could go to a person and say, 'Show me what data you've got.' It just won't happen," the employee tells Sell-Side Technology. "[BCBS 239] is a venue for you and a platform to defend yourself against some of those new entrants, and trying to really exploit that data in a way that's really far beyond BCBS 239, which is really about a relatively narrow set."

The Bottom Line

·Implementing the necessary systems and processes to meet BCBS 239 guidelines should put firms in a better position to meet future regulatory requirements.

·BCBS 239 has also raised the awareness level of risk at the board level, therefore making it part of a bigger agenda throughout the industry to change the way firms approach enterprise-level risk.

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What BCBS 239 Means for the Industry

Whenever the topic of BCBS 239, the Basel Committee on Banking Supervision's set of guidelines regarding risk data aggregation and reporting, people immediately tend to jump to the looming January 2016 deadline.

Whenever the topic of BCBS 239, the Basel Committee on Banking Supervision's set of guidelines regarding risk data aggregation and reporting, people immediately tend to jump to the looming January 2016 deadline.